Poor old TWE has been whacked to a new 10 year low.. it's lost 67% in the last ~3 years.

My rough hindsight harry interpretation of its descent is based on a few factors.

The first is more a general perspective that, in the main, while most of us appreciate the difference between a good bottle and a bad bottle of wine, there's really not a great deal of difference among wines above a certain level. That sort of lower-luxury realm. At least not to the extent most of us (myself definitely included) can objectively discern. And there's a LOT of perfectly good 'luxury' brands. All of which is to say that while Penfolds is a great drop, it's still got a lot of commodity-like characteristics when set against a very wide field of global alternatives.

Basically, their "moat" isn't as wide as people think, imo. Parallel imports in China are shredding their pricing power, proving that even Penfolds isn't immune to basic market mechanics. Add supply gluts to that, specifically TWE's own internal inventory crisis in China and the US, and your expected demand becomes very inconsistent.

And then you have a fairly poor expansion into foreign markets. China isn't just political; the high-margin "easy money" era is gone. The US expansion looks like classic capital misallocation, they effectively swapped high-return China exports for asset-heavy, lower-return US operations. That massive goodwill write-down confirms they overpaid and the RNDC distribution mess shows serious execution risk.

From a share price perspective, you had a high multiple (>25x earnings in 2022) fueled by easier credit conditions and expectations for strong international growth. So although FY26 EBIT might stabilize, the damage has been done by multiple compression. The market has re-rated them because their Return on Invested Capital (ROIC) has been crushed. On a trailing basis, today's PE is 9. And on a forward basis probably 12-14x.

There's very probably a value play to be had at some point. And I thought @Stumpy made a good case in an earlier Straw, but I do think it will take time for their turnaround efforts to show result. They're talking of $100m in cost removal, which is huge, but cost-cutting isn't a growth strategy, especially when global wine consumption is (potentially) structurally declining. Clearing that inventory deck is going to torch free cash flow for at least another 18-24 months.

At a low enough price you get well compensated for these challenges, but I'm not sure where I'd draw that line.

Despite Dan Andrews instructions to get on the beers, it seems we have switched as a nation from beer to wine. Australian consumption preferences are now bottled wine is 34% of the market, regular strength beer 19%, although if you add mid and low strength, total beer is 33% bottled spirits are around 15% and then there is the rest.

Treasury is in the market if flogging us wine, they hold some respectable brands including Penfolds. 

The business has been significantly covid restriction, supply chain interruptions, and China no longer friends with Australia impacted – if you recall they slapped 200% tariffs on Australian wine imports. 

The company is attempting to circumvent this by growing grapes for Penfolds in France. CEO Tim Ford said the company plans to launch a French collection of Penfolds. Ford said, “It’s going to take us multiple years as we build up our luxury wine portfolios out of France and America to really meet that demand over time, and we look at that as a long-term journey to rebuild our market there in China.”

Results released today for the half ending December ‘21:

• Revenue of $1.27 billion, down 10.1% year-on-year 
• Earnings before a myriad of acronyms of $262.4 million, down 6.7% year-on-year 
• Net profit after tax of $109.1 million, down 7.5% year-on-year
• Interim dividend of 15.0 cents per share fully franked

The market though this was ok, mostly as the business managed to grow without China. 

Ford said the business is shifting from ‘recovery and restructuring’ to one of ‘growth and innovation’. 

This is where you must have a leap of faith that restriction and supply chain issues will see consumers returning as before, and they can resurrect the China market by other means. In my mind this is the primary question, but competitors are not going to sit on the sidelines. 

This one is not currently on my shopping list. I still like beer.

Interesting article in The Age 15/5 about Treasury's US expansion using Snoop Dog as their front for advertising.  Getting good uptake in the younger/cheaper market.  Worth a read.  May give the direction required during China woes.  I do think they will execute in to other parts of Asia reasonably over time.  It wont be massive growth but could be steady over many years.